SEABOARD
CORPORATION
August 3, 2015
Kristi Marrone
Securities and Exchange Commission
Division of Corporation Finance
100 F Street, N.E.
Washington, DC 20549
RE: Seaboard Corporation
Form 10-K
Filed February 26, 2015
File No. 1-03390
Dear Ms. Marrone:
We are writing in response to your letter dated July 28, 2015, with respect to
the above referenced report filed by Seaboard Corporation ("Seaboard" or the
"Company"). Our numbered responses to your comments correspond to the numbered
comments in your letter.
In responding to your comments, we acknowledge that:
- the Company is responsible for the adequacy and accuracy of the
disclosure in our filing with the Commission;
- staff comments or changes to disclosure in our filing made in response
to staff comments do not foreclose the Commission from taking any action
with respect to the filing; and
- the Company may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities
laws of the United States.
COMMENTS AND OUR RESPONSES
Exhibit 13 - 2014 Annual Report
Notes to Consolidated Financial Statements, page 32
Comment 1: We note that receivables make up a significant portion of your
total assets and that the majority of these receivables are from
foreign entities, making them inherently more risky than domestic
receivables. Please tell us what consideration you gave to
presenting an aging of accounts receivable or disclosing the amount
of past due balances to provide more insight into the
collectability of these assets.
Response: As disclosed on page 22 of Seaboard's 2014 Annual Report, in the
Critical Accounting Estimates for "Allowance for Doubtful
Accounts", the majority of total current receivables consist of
foreign receivables, including receivables due from affiliates.
Seaboard's foreign receivables generally present a greater
collection risk than that of Seaboard's domestic receivables. As
disclosed, receivables due from affiliates are generally
associated with entities located in foreign countries considered
less developed than the U.S., which can experience conditions
causing sudden changes to their ability to pay such receivables
on a timely basis or in full. Although in recent years collections
have been stable, based on various historical experiences future
collections of receivables or lack thereof could result in a
material charge or credit to earnings depending on the ultimate
resolution of each individual past due receivable. As further
discussed on page 32 in Note 1, Summary of Accounting Policies, for
most operating segments, Seaboard uses a specific identification
approach to determine, in management's judgment, the collection
value of certain past due accounts based on contractual terms and
reviews its allowance for doubtful accounts monthly.
As of December 31, 2014, the large majority of Seaboard's over $500
million of current trade receivables and due from affiliates were
not past due. In past years, bad debt expense resulted from
specific customer issues and not generally from a broader industry
issue. As such, the collection risk for the majority of Seaboard's
current trade receivables and due from affiliates is not considered
to be high. Historically, there have been certain customer,
affiliate or individual country issues that have increased
Seaboard's focus on collection risk. When specific issues are
possibly material to Seaboard's current or future net earnings,
consideration is given to specific disclosure. For example, on
page 12 of our 2014 Annual Report, Seaboard disclosed that the
Power segment is subject to delays in obtaining timely collections
from sales to government related entities which in prior years have
caused operating cash flows to fluctuate from inconsistent customer
collections. Additionally, on page 39 in Note 4, Seaboard
disclosed specific issues, including dollar amounts, as of
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December 31, 2014 related to receivables from affiliates in Brazil.
Based on the above discussion, Seaboard has not considered it
insightful for its business to disclose general aging information
about its receivables and thus it has not provided such general
disclosure in the past. Seaboard believes it is more relevant to
our business and to the readers of Seaboard's financial statements
to focus on those specific situations which have a heightened level
of collection risk, and therefore provide specific disclosure,
including dollar amounts of receivables that are deemed to be at
risk of full collection when deemed warranted.
Note 4 - Investments in and Advances to Affiliates and Notes Receivable from
Affiliates, page 37
Comment 2: We note your disclosure relating to the continued operating losses
of, and other challenges faced by, the bakery business in DRC and
the write-off of your remaining equity investment in this business.
We further note that you discontinued recognizing further interest
income on the note receivable from this business. Please tell us
how you came to the conclusion that no allowance for losses was
necessary as it relates to the $34.6 million note receivable.
Response: As disclosed on pages 22-23 of Seaboard's 2014 Annual Report in the
Critical Accounting Estimates for "Investments in and advances to
Affiliates and Notes Receivable from Affiliates," Seaboard's policy
is to evaluate these amounts based on current information and
events when it is probable that Seaboard will be unable to collect
all amounts due according to contractual terms of the Notes
Receivable and an amount can be reasonably estimated. As further
noted in this disclosure, Seaboard will use, but is not limited to
using, estimated future cash flows generated by the affiliate's
business, the sufficiency of collateral securing the amounts, the
creditworthiness of the counterparties involved, and consideration
of other local business conditions as applicable.
For the bakery business in the Democratic Republic of Congo,
several factors were considered in the collectability of this note
receivable as of December 31, 2014. However, the primary decision
to not record an allowance was based on the future estimated cash
flows for this business, which indicated full collection over the
remaining life of the assets of the business. However, the
estimated cash flow did not support recovery of any future interest
amounts, therefore Seaboard discontinued accruing interest.
Seaboard also considered that the business had no third party debt
to which Seaboard's note receivable would be subordinated giving
Seaboard the ability to collect the first dollar of any excess cash
generated by the business ahead of any equity distributions to
Seaboard's partners.
Currently, Seaboard's management is committed to this business,
although the
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first scheduled payment for this note receivable will not be
collected timely. Seaboard will waive temporarily this default to
work with the business management and other owners to determine the
payment schedule. Although the losses through the first six months
of 2015 have been less than the January 2015 cash flow forecasts
discussed on page 39, in Note 4 of the 2014 Annual Report, if the
future long-term cash flows of this bakery do not improve, there is
a possibility that some of the recorded value of the Note
Receivable from Affiliate could be deemed uncollectible in the
future, which may result in a material charge to earnings. Seaboard
monitors the facts and circumstances quarterly for changes that
affect the business to assess and evaluate the collectability of
this note.
Comment 3: We note your disclosure that the flour production business in
Brazil incurred significant operating losses in 2014. We also note
your disclosure on page 14 and 19 of your Form 10-Q of April 4,
2015 that significant operating losses continued in the first
quarter of 2015 and you anticipate continuing losses from this
affiliate for the remainder of 2015. Please tell us how you came to
the conclusion that your equity investment in and the note
receivable from this business were not impaired.
Response: Seaboard initially invested in this Brazil business in September
2013. Previous to Seaboard's initial investment, this business had
begun to struggle, which created the investment opportunity for
Seaboard. At the time of Seaboard's initial investment, plans
included potential future, equal additional investments by the
owners to improve existing operations and expand operations to
improve long-term operating results as well as significant changes
in local management. It was anticipated that in the near term,
operating losses would be incurred until such time as Seaboard,
working with the other equity partner, could have significant
influence over the business to make operational changes. During the
December 31, 2014 year-end close process, local management,
Seaboard management and Seaboard's partner in the business
remained optimistic about the ability to successfully turn-around
this business and the resulting estimated future cash flows. As of
December 31, 2014, Seaboard concluded that although the business
was incurring losses, in light of the fact that the business was
still in the early phases of the turnaround, these losses were not
deemed to be an indicator that the investment and notes receivable
were impaired at that time.
In March and April of 2015, new issues arose including larger than
anticipated losses and delayed funding from Seaboard's 50% partner
in the business that heightened Seaboard's concern for this
business. However, projected cash flows demonstrated significant
long-term positive cash flows, and management remained confident in
the overall long-term success of this business and believed the
changes in local management and the operating strategy needed more
time to be successful. Accordingly, there was no change in
management's view as to the recoverability of the investment and
notes
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receivable as of the end of the first quarter of 2015.
Subsequently, during June and July of 2015, further issues have
arisen, especially related to concerns regarding disagreements with
the other equity partner as to the necessary support of the
business, including their ability and willingness to fund
additional capital contributions, and the amount of increased third
party bank borrowings during the second quarter and the
availability of potential future borrowings necessary to fund
operations. In addition, Belarina halted the construction plans of
a new plant as efficiencies and operating improvements, originally
planned are not being achieved at the current facilities. In
addition, the Managing Director of the business resigned in the
third quarter 2015.
As a result of the continuing deterioration of the business,
concerns regarding local management and their operating strategies,
and significant delays in reaching agreement with the business'
other equity partner on the needs and timing of additional equity
investments, Seaboard concluded that an impairment of its
investments in and advances to this affiliate and the
collectability of its long-term notes receivable had occurred as of
the end of the second quarter of 2015. Accordingly, an evaluation
of impairment was performed for Seaboard's investments, notes and
receivables for this business in accordance with Seaboard's
policies.
As of the date of this letter, discussions are ongoing with our
partner as to their full commitment for the future of this
business, but the general nature of these discussions are
dramatically different than at either the time of filing Seaboard's
2014 Annual Report or the time of filing Seaboard's 2015 first
quarter 10-Q. Also, during the second quarter of 2015, as
cumulative losses exceeded total equity for this investment,
Seaboard increased its proportionate share of losses from 50% to
100%, which resulted in the write-off of all of Seaboard's
remaining equity investment and the write-down of an additional
$7.2 million of its advances and long-term loan. In addition, a
new long-term cash flow model was developed, which indicated
Seaboard's inability to recover its long-term note receivable as
any future excess cash flow generated by this business would need
to be used to repay the increased third party debt having priority
over Seaboard. As a result, in the second quarter of 2015,
Seaboard provided an allowance of 100% of the $9.3 million
remaining portion of the long-term note. Finally, based on an
analysis of collectability and working capital, Seaboard provided
an allowance of $3.0 million in the second quarter of 2015 of its
current receivable due from affiliates related to this business
resulting from sales of grain and supplies. It is possible that
additional allowances will be necessary during the remainder of
2015.
We hope that the above has been of assistance to you and that it is
fully responsive to your comments. If you have any questions or
require any further information, please call me at
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(913) 676-8833 or Michael Trollinger, Vice President, Corporate
Controller and Chief Accounting Officer at (913) 676-8735.
Very truly yours,
SEABOARD CORPORATION
/s/ Robert L. Steer
Robert L. Steer
Executive Vice President and Chief
Financial Officer
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